Calcutta, Aug. 10: Vizag Steel Plant (VSP) is in talks to procure Reliance’s Godavari basin gas, which will be supplied once commercial production starts next year.

Confirming the development, sources in VSP said the steel company is weighing options to partially replace coal as a feedstock with gas in a cost-saving move.

“We have discussed the option with the Reliance. We are working on the cost benefits to be derived if gas is used in place of coke for our steel production. Based on that conclusion, we will firm up a deal,” they said.

A senior VSP executive said the firm is keen on getting gas from the Godavari field because coal as the traditional input in steel making was becoming dearer in the international market amid strong demand.

What has reassured Vizg Steel Plant is the fact that Reliance’s block, one of the largest gas discoveries in recent times, will be in a position to ensure sustained supplies.

The executive said the 570 tonnes of coal that is currently used in VSP’s steel production could be brought down to 350 tonnes if a part of it was substituted for gas. “A lot of money can be saved on this count and the overall cost of production will decline substantially,” he added.

VSP has undertaken a major expansion plan in three phases, an initiative that is estimated to cost it Rs 17,500 crore. In the first phase, which is expected to begin soon, the company is investing around Rs 2,500 crore.

The executive said the expansion hinges, in large part, on the production processes to be adopted, especially if gas proves to be a cheaper option than coal.

“We import all the coke used in our plant. This exposes us to international price fluctuations. We will need much more of the mineral once our expansion is complete. That is why we are seriously looking into the possibility of using gas as an alternative input,” he said.

VSP has plans to expand capacity from three million tonnes to 10 million tonnes over the next few years. The firm notched up a turnover of Rs 522 crore in July, which is the best monthly performance so far. While sales grew 44 per cent to Rs 455 crore in the domestic market, exports jumped 11 per cent to Rs 57 crore.